Filed pursuant to Rule 424(b)(3)
Registration No. 333-85228-99
PROSPECTUS
(NABORS LOGO)
UP TO 7,150,000 COMMON SHARES
(PAR VALUE U.S.$0.001 PER SHARE)
OF
NABORS INDUSTRIES LTD.
This prospectus relates to the common shares of Nabors Industries Ltd.
(which we refer to as Nabors Bermuda in this prospectus), issuable upon:
- exchange or redemption of the exchangeable shares of Nabors Exchangeco
(Canada) Inc., a Canadian corporation and an indirect wholly-owned
subsidiary of Nabors Bermuda, which we call Exchangeco in this
prospectus; and
- the exercise of certain warrants to purchase Nabors Bermuda common shares
described in this prospectus.
The exchangeable shares were issued to former shareholders of Enserco
Energy Service Company Inc., a corporation incorporated under the laws of
Canada, in connection with the acquisition of Enserco by Nabors Industries,
Inc., a Delaware corporation and our wholly-owned indirect subsidiary (which we
refer to as Nabors Delaware). Each exchangeable share may be exchanged for one
of our common shares, plus the aggregate amount of dividends payable and unpaid,
if any, on each such exchangeable share. In some cases, Exchangeco may redeem
each exchangeable share for one of our common shares plus the aggregate amount
of dividends payable and unpaid, if any, on each such exchangeable share.
Because our common shares offered by this prospectus will be issued in exchange
for, or upon the redemption of, the exchangeable shares, we will not receive any
cash proceeds from the issuance of our common shares upon exchange or redemption
of exchangeable shares in connection with this offering.
In connection with Nabors Delaware's acquisition of Enserco, warrants to
purchase 500,000 Enserco common shares became, after the completion of the
acquisition of Enserco and the reorganization transaction in which Nabors
Delaware became a wholly-owned indirect subsidiary of Nabors Bermuda (which
transaction we refer to as the reorganization in this prospectus), warrants to
purchase the number of our common shares as the warrantholder would have been
entitled to receive pursuant to the Enserco acquisition if the warrants had been
exercised and the Enserco common shares were exchanged for Nabors Bermuda common
shares on the basis of the exchange ratio in the Enserco acquisition. In this
offering, we may receive the exercise price of the warrants in cash when the
warrants are exercised and we deliver our common shares upon such exercise, up
to a maximum of approximately U.S.$3 million if all warrants are exercised
(subject to adjustment of the exercise price of the warrants in accordance with
their terms).
We are paying all expenses of registration incurred in connection with this
offering.
Nabors Bermuda's common shares are traded on the American Stock Exchange
under the symbol "NBR." On June 24, 2002, the last reported sales price of the
common stock of Nabors Delaware (which was the publicly traded parent
corporation of the Nabors group of companies prior to consummation of the
reorganization described in this prospectus on June 24, 2002) on that exchange
was $37.95. Unless otherwise indicated, all dollar references in this prospectus
are to U.S. dollars.
INVESTING IN NABORS BERMUDA'S COMMON SHARES INVOLVES RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 3.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is June 25, 2002.
TABLE OF CONTENTS
PAGE
----
About This Prospectus....................................... 1
The Company................................................. 1
Recent Developments......................................... 2
Risk Factors................................................ 3
Where You Can Find More Information......................... 4
Forward-Looking Statements.................................. 5
Use of Proceeds............................................. 6
Plan of Distribution........................................ 6
Description of Our Share Capital............................ 14
Income Tax Considerations................................... 18
Legal Matters............................................... 25
Experts..................................................... 25
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ABOUT THIS PROSPECTUS
This document is called a prospectus and is part of a registration
statement that we filed with the Securities and Exchange Commission (which we
refer to as the SEC in this prospectus) using a "shelf" registration or
continuous offering process.
The registration statement containing this prospectus, including the
exhibits to the registration statement, provides additional information about us
and the securities offered under this prospectus. The registration statement,
including the exhibits, can be read at the SEC web site or at the SEC office
mentioned under the heading "Where You Can Find More Information."
You should rely only on the information incorporated by reference or
provided in this prospectus. We have not authorized anyone to provide you with
different information. We are not making an offer or soliciting a purchase of
these securities in any jurisdiction in which the offer or solicitation is not
authorized or in which the person making the offer or solicitation is not
qualified to do so or to anyone to whom it is unlawful to make the offer or
solicitation. You should not assume that the information in this prospectus or
any prospectus supplement is accurate as of any date other than the date on the
front of the document.
THIS PROSPECTUS INCORPORATES BY REFERENCE IMPORTANT BUSINESS AND FINANCIAL
INFORMATION ABOUT NABORS BERMUDA, NABORS DELAWARE, EXCHANGECO AND THE
EXCHANGEABLE SHARES THAT IS NOT INCLUDED IN OR DELIVERED WITH THIS PROSPECTUS.
COPIES OF THE INCORPORATED DOCUMENTS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS,
UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE THEREIN) WILL BE
FURNISHED UPON WRITTEN OR ORAL REQUEST WITHOUT CHARGE TO EACH PERSON TO WHOM
THIS PROSPECTUS IS DELIVERED. REQUESTS SHOULD BE DIRECTED TO NABORS INDUSTRIES
LTD., WHITEPARK HOUSE, WHITE PARK ROAD, BRIDGETOWN, BARBADOS, OR VISIT OUR
WEBSITE AT "http://www.nabors.com". WEBSITE MATERIALS ARE NOT PART OF THIS
PROSPECTUS.
Unless we have indicated otherwise, references in this prospectus to
"Nabors Bermuda," "we," "us," and "our" or similar terms are to Nabors
Industries Ltd. and its consolidated subsidiaries.
THE COMPANY
Nabors Bermuda, together with its subsidiaries, is the largest land
drilling contractor in the world, with over 580 land drilling rigs as of June
24, 2002. We conduct oil, gas and geothermal land drilling operations in the
U.S. lower 48 states, Alaska and Canada, and internationally, primarily in South
and Central America, the Middle East and Africa. As of June 24, 2002, 142 of our
approximately 596 land drilling rigs were located in certain international
markets. We also are one of the largest land well-servicing and workover
contractors in the United States and in Canada. We own approximately 745 land
workover and well-servicing rigs in the southwestern and western United States,
and approximately 233 well-servicing and workover rigs in certain international
markets, including approximately 193 rigs in Canada. We also are a leading
provider of offshore platform workover and drilling rigs. We market 42 platform,
16 jackup and three barge rigs in the Gulf of Mexico and international markets.
These rigs provide well-servicing, workover and drilling services. We also own
and operate a net of nine rigs through an international joint venture in Saudi
Arabia (giving effect to our 50% interest in the venture's 18 rigs).
To further supplement our primary business, we offer a number of ancillary
well-site services, including oilfield management, engineering, transportation,
construction, maintenance, well logging and other support services, in selected
domestic and international markets. Our land transportation and hauling fleet
includes approximately 240 rig and oilfield equipment hauling tractor-trailers
and a number of cranes, loaders and light-duty vehicles. We also maintain over
290 fluid hauling trucks, approximately 700 fluid storage tanks, eight salt
water disposal wells and other auxiliary equipment used in domestic drilling and
well-servicing operations. In addition, we market a fleet of 30 marine
transportation and support vessels, primarily in the Gulf of Mexico, that
provides transportation of drilling materials, supplies and crews for offshore
rig operations and support for other offshore operations. And we manufacture and
lease or sell top
drives for a broad range of drilling rig applications, rig instrumentation and
data collection equipment, and rig reporting software.
Nabors Bermuda was formed as a Bermuda exempted company on December 11,
2001. Nabors Delaware was incorporated in Delaware in 1978. Our principal
executive offices are located at Whitepark House, White Park Road, Bridgetown,
Barbados. Our phone number at our principal executive offices is (246) 427-8617.
RECENT DEVELOPMENTS
AGREEMENT TO ACQUIRE ENSERCO
On February 25, 2002, Nabors Delaware entered into an acquisition agreement
to acquire Enserco, which agreement was amended and restated on March 18, 2002.
The acquisition became effective pursuant to a plan of arrangement submitted for
approval to the securityholders of Enserco and to the Court of Queen's Bench of
Alberta. Nabors Delaware agreed to pay Cdn. $15.50 per Enserco common share
(plus additional consideration calculated at 6% per annum from and including
February 26, 2002 to closing). The purchase price was payable, at the election
of each individual Enserco shareholder, in cash, in exchangeable shares of
Exchangeco or in a combination of cash and such exchangeable shares. The
acquisition closed on April 26, 2002. The exchangeable shares are now
exchangeable for our common shares on a 1:1 basis, plus the aggregate amount of
dividends payable and unpaid, if any, on each such exchangeable share.
Under the terms of the acquisition agreement, the number of exchangeable
shares to be issued for each Enserco common share took into account the
additional consideration component and was determined based on the weighted
average trading price of Nabors Delaware common stock, on the American Stock
Exchange for the 10 consecutive trading days ending on the third business day
prior to the date of the Enserco shareholders meeting to approve the plan of
arrangement, converted into Canadian dollars at an exchange rate set forth in
the plan of arrangement. On April 19, 2002, Nabors Delaware and Enserco
announced that under this formula (which we refer to as the exchange ratio in
this prospectus), each Enserco shareholder electing to receive exchangeable
shares as consideration for all or a portion of their Enserco common shares in
the transaction would receive .2377 exchangeable shares for each Enserco common
share for which such election was made.
Pursuant to the plan of arrangement, Exchangeco acquired all of the
outstanding common shares of Enserco in exchange for approximately Cdn. $184
million in cash and approximately 3.55 million exchangeable shares, of which
approximately 2.64 million shares were immediately exchanged for shares of
Nabors Delaware common stock. As of May 31, 2002, there were approximately
742,609 exchangeable shares issued and outstanding.
In connection with entering into the acquisition agreement, Nabors Delaware
also agreed to acquire from four significant Enserco shareholders, prior to the
completion of the acquisition of Enserco pursuant to the plan of arrangement,
approximately 20.5% of the outstanding Enserco common shares for Cdn. $15.50 in
cash per Enserco common share. Two of these purchase agreements were entered
into between Nabors Delaware and John E. Hokanson, the President and Chief
Executive Officer of Enserco, and J&S Hokanson Investments Ltd., a corporation
controlled by Mr. Hokanson, under which Exchangeco purchased 131,731 and 771,747
Enserco common shares, respectively. The other two purchase agreements were
entered into between Nabors Delaware and SCF-III, L.P. and SCF-IV, L.P.,
pursuant to which Exchangeco purchased from such shareholders 1,706,092 and
2,757,304 Enserco common shares, respectively. SCF-III, L.P. and SCF-IV, L.P.
are private investment partnerships based in Houston, Texas. Mr. John Geddes,
chairman of the board of directors of Enserco, is affiliated with the general
partner of SCF-III, L.P. and SCF-IV, L.P. Exchangeco completed the four share
purchase transactions on March 18, 2002.
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SCF-IV also held warrants to purchase 500,000 Enserco common shares at an
exercise price of Cdn. $9.50 per share. The plan of arrangement provided that
such warrants would, after the effective time of the arrangement and the
reorganization, represent the right to purchase our common shares. Under the
arrangement, the number of our common shares issuable upon exercise of the
warrants after the effective time of the arrangement and the reorganization is
equal to 500,000 (or such lesser number of shares if the warrant is exercised in
part prior to the effective time of the arrangement or the reorganization)
multiplied by the exchange ratio and the exercise price for such warrants is
Cdn. $9.50 divided by the exchange ratio, converted into U.S. dollars at an
agreed upon exchange rate. On April 19, 2002, Nabors Delaware and Enserco
announced that the exchange ratio would be .2377.
Accordingly, upon completion of the arrangement and the reorganization, the
warrants held by SCF-IV became exercisable for 118,850 of our common shares at
an exercise price of U.S.$25.39 per share.
REORGANIZATION
The stockholders of Nabors Delaware have approved and we have consummated a
reorganization in which Nabors Delaware became a wholly-owned, indirect
subsidiary of Nabors Bermuda. As a result of the reorganization, all outstanding
shares of Nabors Delaware common stock were converted into the right to receive
our common shares on a 1:1 basis, so that the stockholders of Nabors Delaware,
including the holders of Nabors Delaware common stock who became stockholders of
Nabors Delaware as a result of the Enserco acquisition, on the date of the
reorganization became the owners of the same number of our common shares as they
previously held in shares of Nabors Delaware common stock.
We will continue to conduct the business previously conducted by Nabors
Delaware and its subsidiaries. We consummated the reorganization, because
international activities are an important part of our current business and we
believe that international operations will account for a greater percentage of
our total revenues in the future. Expansion of our international business is an
important part of our current business strategy and significant growth
opportunities exist in the international marketplace. We believe that
reorganizing as a Bermuda company will allow us to implement our business
strategy more effectively. In addition, we believe that the reorganization
should increase our access to international capital markets and acquisition
opportunities, increase our attractiveness to non-U.S. investors, improve global
cash management, improve global tax position and result in a more favorable
corporate structure for expansion of our current business.
It is important to note that several senior members of the United States
Congress have introduced legislation that, if enacted, would have the effect of
eliminating the anticipated tax benefits of the reorganization. In addition,
several other members of the United States Congress and the Treasury Department
have recently announced the intent to investigate transactions such as the
reorganization. On May 17, 2002, the Treasury Department released its
preliminary report on the issues arising in connection with inversion
transactions. The Treasury Report indicates that a prompt and comprehensive
review of the U.S. tax system is in order and concludes that further work is
needed to develop and implement an appropriate and effective long-term response
to the issues under study. As a result of the increased scrutiny of such
transactions, changes in the tax laws, tax treaties or tax regulations may
occur, with prospective or retroactive effect, which could eliminate or
substantially reduce the anticipated tax benefits of the reorganization or have
a material adverse effect on the tax consequences of the reorganization to
Nabors Bermuda.
RISK FACTORS
Investing in our common shares involves risk. In addition to the risk
factors described: (i) in Nabors Delaware's Annual Report on Form 10-K under the
heading "Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" for the year ended December 31, 2001, (ii) in Nabors
Delaware's Quarterly Report on Form 10-Q under the heading "Item 2. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
3
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" for the quarter ended March 31,
2002 and (iii) in our Registration Statement on Form S-4, filed with the SEC on
January 2, 2002, as amended, under the heading "RISK FACTORS," which are
incorporated by reference in this prospectus, and the other information
contained or incorporated by reference in this prospectus, you should carefully
consider the risk factors described below before making an investment decision.
The risks and uncertainties described below and incorporated by reference are
not the only risks we face. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may impair our future business
operations.
THE EXCHANGE OF YOUR EXCHANGEABLE SHARES IS GENERALLY TAXABLE.
Based on the tax laws as of the date of this prospectus, the exchange of
exchangeable shares for our common shares is generally a taxable event in Canada
and may be a taxable event in the United States. A holder's tax consequences can
vary depending on a number of factors, including the residency of the holder,
the method of the exchange and the length of time that the exchangeable shares
were held prior to the exchange. Canadian and United States federal income tax
consequences will vary depending on your particular circumstances. We strongly
urge you to consult your tax advisor as to the tax consequences of exchanging
your exchangeable shares for our common shares. See "Income Tax Considerations."
THE MARKET PRICE OF OUR COMMON SHARES MAY BE LESS THAN THE MARKET PRICE OF THE
EXCHANGEABLE SHARES.
Our common shares are listed on the American Stock Exchange, and the
exchangeable shares are listed on The Toronto Stock Exchange. We do not intend
to list the exchangeable shares or our common shares on any other stock exchange
in Canada or in the United States. As a result, the price at which the
exchangeable shares trade is expected to be based upon the market for such
shares on The Toronto Stock Exchange, and the price at which our common shares
trade is based upon the market for such shares on the American Stock Exchange.
Although we believe that the market price of the exchangeable shares on The
Toronto Stock Exchange and the market price of our common shares on the American
Stock Exchange should reflect essentially equivalent values, there can be no
assurance that the market price of our common shares will be identical, or even
similar, to the market price of the exchangeable shares.
OUR COMMON SHARES WILL BE FOREIGN PROPERTY FOR CANADIAN TAX PURPOSES.
You may be required to limit your investment in our common shares or risk
incurring penalties under the Income Tax Act (Canada) if you are:
- a registered pension plan;
- a registered retirement savings plan;
- a registered retirement income fund;
- a deferred profit sharing plan; or
- among some other classes of tax-exempt person.
So long as the exchangeable shares are listed on a prescribed Canadian
stock exchange, which exchanges include The Toronto Stock Exchange, and
Exchangeco maintains a substantial presence in Canada, the exchangeable shares
will not be foreign property under the Income Tax Act (Canada). Our common
shares will, however, be foreign property for these plans or persons. These
plans or persons may have to limit their investment in our common shares or risk
incurring penalties under the Income Tax Act (Canada).
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may obtain any document we file with the SEC at
the SEC's Public Reference Room in
4
Washington, D.C. You may obtain information on the operation of the SEC's Public
Reference Room by calling the SEC at 1-800-SEC-0330. You can request copies of
these documents, upon payment of a duplicating fee, by writing to the SEC at its
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549-1004. Our SEC
filings are also accessible through the Internet at the SEC's web site at
http://www.sec.gov.
The SEC permits us to "incorporate by reference" into this prospectus the
information in documents we file with it, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is considered to be a part of this
prospectus, and later information that we file with the SEC will update and
supersede this information. We incorporate by reference the documents listed
below and any future filings made with the SEC under Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended, until the offering is
otherwise terminated:
- Nabors Delaware's Annual Report on Form 10-K for the year ended December
31, 2001, filed with the SEC on March 19, 2002 (File No. 001-09245);
- Nabors Delaware's Current Reports on Form 8-K dated January 3, 2002,
January 25, 2002, April 18, 2002, June 14, 2002 and June 24, 2002 (File
No. 001-09245);
- Nabors Bermuda's Current Report on Form 8-K dated June 24, 2002 (File No.
333-76198);
- Nabors Delaware's Quarterly Report on Form 10-Q for the quarter ended
March 31, 2002, filed with the SEC on May 15, 2002 (File No. 001-09245);
- Nabors Delaware's Definitive Proxy Statement on Schedule 14A dated April
30, 2002 (File No. 001-09245); and
- The description of our common shares contained in our Registration
Statement on Form S-4, filed with the SEC on January 2, 2002, as amended
by Pre-Effective Amendment No. 1, Pre-Effective Amendment No. 2,
Pre-Effective Amendment No. 3 and Pre-Effective Amendment No. 4 to Form
S-4, filed with the SEC on March 3, 2002, April 17, 2002, April 29, 2002
and May 10, 2002, respectively (Registration No. 333-76198).
If you request a copy of any or all of the documents incorporated by
reference, we will send to you the copies you requested at no charge. However,
we will not send exhibits to such documents, unless such exhibits are
specifically incorporated by reference in such documents. You should direct
requests for such copies to Nabors Industries Ltd., Whitepark House, White Park
Road, Bridgetown, Barbados, telephone: (246) 427-8617.
We have filed with the SEC a registration statement on Form S-3 under the
Securities Act of 1933, as amended (which we refer to as the Securities Act in
this prospectus), covering the securities described in this prospectus. This
prospectus does not contain all of the information included in the registration
statement. Any statement made in this prospectus concerning the contents of any
contract, agreement or other document is only a summary of the actual contract,
agreement or other document. If we have filed any contract, agreement or other
document as an exhibit to the registration statement, you should read the
exhibit for a more complete understanding of the document or matter involved.
Each statement regarding a contract, agreement or other document is qualified in
its entirety by reference to the actual document.
FORWARD-LOOKING STATEMENTS
The statements in this document and the documents incorporated by reference
that relate to matters that are not historical facts are "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934. When used in this document and the
documents incorporated by reference, words such as "anticipate," "believe,"
"expect," "plan," "intend," "estimate," "project," "will," "should," "could,"
"may," "predict" and similar expressions are intended to identify
forward-looking statements. Further events and actual results may differ
materially
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from the results set forth in or implied in the forward-looking statements.
Factors that might cause such a difference include:
- fluctuations in worldwide prices and demand for natural gas and crude
oil;
- fluctuations in levels of natural gas and crude oil exploration and
development activities;
- fluctuations in the demand for our services;
- the existence of competitors, technological changes and developments in
the oilfield services industry;
- the existence of operating risks inherent in the oilfield services
industry;
- the existence of regulatory uncertainties;
- the possibility of political instability in any of the countries in which
we do business; and
- general economic conditions.
Our businesses depend, to a large degree, on the level of spending by oil
and gas companies for exploration, development and production activities.
Therefore, a sustained increase or decrease in the price of natural gas or oil,
which could have a material impact on exploration and production activities,
could also materially affect our financial position, results of operations and
cash flows.
All forward-looking statements in this prospectus are based on information
available to us on the date of this prospectus. We do not intend to update or
revise any forward-looking statements that we may make in this prospectus or
other documents, reports, filings or press releases, whether as a result of new
information, future events or otherwise.
USE OF PROCEEDS
We will receive no net cash proceeds upon the issuance of our common shares
upon exchange or redemption of the exchangeable shares. Upon completion of the
plan of arrangement and the reorganization, the warrants held by SCF-IV became
exercisable for 118,850 of our common shares, subject to adjustment, at an
exercise price of U.S.$25.39 per share (subject to adjustment in accordance with
the terms of the warrants). We may receive up to approximately U.S.$3 million in
net cash proceeds in connection with the exercise of SCF-IV's warrants if all
such warrants are exercised. If received, we will use any such proceeds for
general corporate purposes.
PLAN OF DISTRIBUTION
EXCHANGEABLE SHARES
Our common shares may be issued to you in exchange for your exchangeable
shares in the following ways:
- You may require Exchangeco to exchange your exchangeable shares for an
equivalent number of our common shares. We refer to this as your
retraction rights.
- Exchangeco may automatically redeem your exchangeable shares for our
common shares on the date which is the fifth anniversary of our
acquisition of Enserco or upon the occurrence of any of the events
described under "Our Redemption Rights." We refer to these rights as our
redemption rights.
- Upon our liquidation or the liquidation or insolvency of Exchangeco, you
may be required to, or may choose to, exchange your exchangeable shares
for our common shares. We refer to these rights as your exchange rights.
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In addition, 3064297 Nova Scotia Company, an unlimited company organized
under the laws of Nova Scotia, Canada, and our indirect, wholly-owned subsidiary
(which we refer to as Callco in this prospectus) may exercise call rights over
your exchangeable shares as described under "Callco's Call Rights" beginning on
page 10. These call rights permit Callco to require an exchange of your
exchangeable shares for our common shares if you exercise your retraction rights
or exchange rights or in any circumstance where Exchangeco exercises its
redemption rights. We are also permitted to exercise the call right identified
below as the "change of law call right." Callco and Nabors Bermuda plan to
exercise their call rights, when available, and we currently foresee no
circumstances under which Callco or Nabors Bermuda would not exercise their call
rights. We expect that you will receive our common shares through an exchange
with Callco or Nabors Bermuda, as the case may be, as opposed to a redemption by
Exchangeco, of your exchangeable shares for our common shares. While the
consideration received upon an exchange with Callco or Nabors Bermuda or a
redemption by Exchangeco will be the same, the tax consequences will be
substantially different. These call rights are described below and are
respectively called the:
- retraction call rights;
- liquidation call rights;
- redemption call rights; and
- change of law call rights.
YOUR RETRACTION RIGHTS
Subject to applicable law and Callco's retraction call right described in
this prospectus, you are entitled at any time to retract, or require Exchangeco
to redeem, any or all of your exchangeable shares and to receive an equal number
of our common shares plus the aggregate amount of dividends payable and unpaid,
if any, on each such exchangeable share. You may exercise your retraction rights
by presenting to the transfer agent for the exchangeable shares or Exchangeco:
- a certificate or certificates representing the number of exchangeable
shares you desire to retract;
- any other documents as may be required to effect the retraction of such
exchangeable shares; and
- a duly executed retraction request:
- specifying the number of exchangeable shares you desire to retract;
- stating the retraction date on which you desire to have Exchangeco
redeem your exchangeable shares, which must be between 10 and 15
business days from the date Exchangeco receives the request; and
- acknowledging Callco's overriding retraction call right to purchase all
but not less than all of the retracted shares directly from you and that
the retraction request will be deemed to be a revocable offer by you to
sell the retracted shares to Callco in accordance with Callco's
retraction call right on the terms and conditions described below.
Exchangeco will promptly notify Callco upon receipt of a retraction
request. In order to exercise its retraction call right, Callco must notify
Exchangeco of its determination to do so within five business days of
Exchangeco's receipt of the retraction request. If Callco delivers the call
notice to Exchangeco within five business days, and you have not revoked your
retraction request, Exchangeco will not redeem the retracted shares and Callco
will purchase from you the retracted shares on the retraction date. If Callco
does not timely deliver the call notice and you have not revoked your retraction
request, Exchangeco will redeem the retracted shares on the retraction date. In
the event that Callco exercises its retraction call right, the closing of the
purchase and sale of the retracted shares under the retraction call right will
be deemed to occur as at the close of business on the retraction date, and no
redemption by Exchangeco of the retracted shares will take place on the
retraction date.
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You may revoke a retraction request by giving notice in writing to
Exchangeco at any time prior to the close of business on the business day
immediately preceding the retraction date, in which case the retracted shares
will neither be purchased by Callco nor be redeemed by Exchangeco. If the
retraction request is not revoked on or prior to the close of business on the
business day immediately preceding the retraction date, the retracted shares
will either be purchased by Callco or redeemed by Exchangeco. Callco or
Exchangeco, as the case may be, will then deliver or cause Exchangeco's transfer
agent to deliver the retraction price to you by mailing:
- certificates representing the number of our common shares equal to the
number of exchangeable shares purchased or redeemed, registered in your
name or such other name as you may request; and
- if applicable, a check payable to you for the aggregate amount of
dividends payable and unpaid on each such exchangeable share,
to the address recorded in the securities register of Exchangeco or to the
address specified in your retraction request or by holding the same for you to
pick up at the registered office of Exchangeco or the office of Exchangeco's
transfer agent as specified by Exchangeco, in each case less any amounts
required to be withheld because of applicable taxes.
If, as a result of solvency requirements or applicable law, Exchangeco is
not permitted to redeem all of your exchangeable shares specified in the
retraction request, and provided Callco has not exercised its retraction call
right with respect to such retracted shares, Exchangeco will redeem only those
retracted shares requested by you (rounded down to a whole number of shares) as
would not be contrary to provisions of applicable law. The trustee under the
voting and exchange trust agreement, on your behalf, will require us to purchase
the retracted shares not redeemed by Exchangeco or purchased by Callco on the
retraction date or as soon as reasonably practicable after the retraction date,
under your exchange rights.
OUR REDEMPTION RIGHTS
Subject to applicable law and Callco's redemption call rights discussed
below, on an automatic redemption date, Exchangeco will redeem all of the then
outstanding exchangeable shares in exchange for an equal number of our common
shares, plus the aggregate amount of dividends payable and unpaid, if any, on
each such exchangeable share. Notwithstanding any proposed redemption of the
exchangeable shares you may initiate, our redemption rights give us the
overriding right to acquire on an automatic redemption date all but not less
than all of the outstanding exchangeable shares in exchange for an equal number
of our common shares, plus the amount of all payable and unpaid dividends, if
any, on each such exchangeable share.
An automatic redemption will occur upon the first to occur of:
- the date, on or after the fifth anniversary of the effective date of our
acquisition of Enserco, as established by the board of directors of
Exchangeco;
- the date that there are outstanding less than 1,500,000 exchangeable
shares (other than exchangeable shares held by us and our affiliates) and
the board of directors of Exchangeco decides to accelerate the redemption
of the exchangeable shares prior to the fifth anniversary of the
effective date of our acquisition of Enserco;
- the occurrence of any merger, amalgamation, tender offer, material sale
of shares or similar transactions involving Nabors Bermuda, or any
proposal to carry out the same, in which case the board of directors of
Exchangeco determines in good faith that it is not reasonably practicable
to substantially replicate the terms and conditions of the exchangeable
shares in connection with such transaction and that the redemption of all
but not less than all of the exchangeable shares is necessary to enable
the completion of such transaction in accordance with its terms;
- the business day prior to the record date for any meeting or vote of
Exchangeco shareholders to consider any matter in which the holders of
exchangeable shares would be entitled to vote as
8
Exchangeco shareholders, but, except as described in the bullet
immediately following below, excluding meetings or votes regarding
changes to the rights, privileges, restrictions or conditions of the
exchangeable shares requiring the approval of the holders of the
exchangeable shares; and
- the business day following the day on which the holders of exchangeable
shares fail to take the necessary action at a meeting or other vote of
holders of exchangeable shares, if and to the extent the action is
required, to approve or disapprove any change to, or in the rights of the
holders of, the exchangeable shares, if the approval or disapproval of
the change would be required to maintain the economic and legal
equivalence of the exchangeable shares and our common shares.
At least 45 days before an automatic redemption date (or if the automatic
redemption date occurs as a result of a Nabors control transaction, a record
date for a vote of Exchangeco shareholders or the failure of Exchangeco
shareholders to approve a change to the exchangeable shares described in the
three immediately preceding bullet points above, on as many days prior written
notice as the board of directors of Exchangeco determines to be reasonably
practicable under the circumstances), Exchangeco shall provide you with written
notice of the proposed redemption or possible redemption of the exchangeable
shares by Exchangeco or the purchase of the exchangeable shares by Callco under
its redemption call right, as the case may be. In the case of a possible
automatic redemption date, the notice will be given contingently and will be
withdrawn if the contingency does not occur.
YOUR EXCHANGE RIGHTS
Liquidation and Insolvency Rights with Respect to Exchangeco. Subject to
Callco's liquidation call right described below, in the event of the
liquidation, dissolution or winding-up of Exchangeco or any other distribution
of assets of Exchangeco among its shareholders for the purpose of winding-up its
affairs, you will be entitled to receive for each exchangeable share one of our
common shares, together with all dividends payable and unpaid on your
exchangeable shares, if any.
In the event of the liquidation, dissolution or winding-up of Exchangeco or
any other proposed distribution of the assets of Exchangeco among its
shareholders for the purpose of winding-up its affairs, holders of the
exchangeable shares will have, subject to applicable law, preferential rights to
receive from Exchangeco, for each exchangeable share held, an amount equal to
the market price of our common shares on the last business day prior to the
liquidation, which amount shall be paid by the delivery to such holders of one
of our common shares for each exchangeable share held plus the aggregate amount
of dividends payable and unpaid on each such exchangeable share, if any. Upon
the occurrence of such liquidation, dissolution or winding-up, Callco will have
an overriding right to purchase all of the outstanding exchangeable shares
(other than exchangeable shares held by us and our affiliates) from the holders
of the exchangeable shares on the effective date of such liquidation,
dissolution or winding-up for a purchase price per share equal to the market
price of our common shares on the last business day prior to the liquidation
(which amount shall be paid by the delivery to such holders of one of our common
shares for each exchangeable share held), plus, to the extent it is not paid by
Exchangeco, the aggregate amount of dividends payable and unpaid, if any, on
each such exchangeable share.
Upon, and during the continuance of, insolvency of Exchangeco, a holder of
exchangeable shares will be entitled to instruct the trustee under the voting
and exchange trust agreement to exercise the exchange rights with respect to any
or all of the exchangeable shares held by such holder, thereby requiring us to
purchase such exchangeable shares from the holder. As soon as practicable
following the occurrence of such an insolvency of Exchangeco or any event which
would, with the passage of time and/or the giving of notice, lead to insolvency
of Exchangeco, we and Exchangeco will give written notice of an insolvency or
such event to the trustee. As soon as practicable after the delivery of such
notice, the trustee will then notify each holder of exchangeable shares of such
event or potential event and will advise the holder of its rights with respect
to the liquidation exchange right. The purchase price payable by us for each
exchangeable share purchased under this right will be satisfied by the issuance
of one of our common shares plus, to the extent not paid by Exchangeco, the
aggregate amount of dividends payable and unpaid, if any, on each such
exchangeable share.
9
An insolvency event will occur in respect of Exchangeco upon:
- the institution by Exchangeco of any proceeding to be adjudicated as
bankrupt or insolvent or to be wound up, or the consent of Exchangeco to
the institution of bankruptcy, insolvency or winding-up proceedings
against it;
- the filing of a petition, answer or consent seeking dissolution or
winding-up under any bankruptcy, insolvency or analogous laws, including
the Companies Creditors' Arrangement Act (Canada) and the Bankruptcy and
Insolvency Act (Canada), and Exchangeco's failure to contest in good
faith such proceedings commenced in respect of Exchangeco within 30 days
of becoming aware of the proceedings, or the consent by Exchangeco to the
filing of any such petition or to the appointment of a receiver;
- the making by Exchangeco of a general assignment for the benefit of
creditors, or the admission in writing by Exchangeco of its inability to
pay its debts generally as they come due; or
- Exchangeco not being permitted, under solvency requirements of applicable
law, to redeem any retracted exchangeable shares in accordance with the
exchangeable share conditions.
Liquidation with Respect to Nabors Bermuda. In order for the holders of
the exchangeable shares to participate on a pro rata basis with the holders of
our common shares in the event of our liquidation, immediately prior to the
effective date of a liquidation event, each exchangeable share will
automatically be exchanged for an equivalent number of our common shares, plus,
to the extent not paid by Exchangeco, the aggregate amount of dividends payable
and unpaid, if any, on each such exchangeable share. Upon a holder's request and
surrender of exchangeable share certificates, duly endorsed in blank and
accompanied by such instruments of transfer as we may reasonably require, we
will deliver to such holder certificates representing an equivalent number of
our common shares plus, to the extent not paid by Exchangeco, the aggregate
amount of dividends payable and unpaid, if any, on exchangeable shares for each
exchangeable share exchanged under this exchange right.
A liquidation event will occur in respect of Nabors Bermuda upon:
- determination by the Nabors Bermuda board to institute voluntary
liquidation, dissolution, or winding-up proceedings with respect to
Nabors Bermuda or to effect any other distribution of its assets among
its shareholders for the purpose of winding-up its affairs, at least 60
days prior to the proposed effective date of such liquidation,
dissolution, winding-up or other distribution; or
- receipt by Nabors Bermuda of notice of, or Nabors Bermuda otherwise
becoming aware of, any threatened or instituted claim, suit, petition or
other proceedings with respect to the involuntary liquidation,
dissolution or winding-up of Nabors Bermuda or to effect any distribution
of assets of Nabors Bermuda among its shareholders for the purpose of
winding-up its affairs, in each case where Nabors Bermuda has failed to
contest in good faith any such proceeding commenced in respect of Nabors
Bermuda within 30 days of becoming aware of the proceeding.
CALLCO'S CALL RIGHTS
In the circumstances described below, Callco and, in the case of the change
of law call right, we will have overriding call rights to acquire your
exchangeable shares by delivering an equal number of our common shares, plus all
dividends on our common shares then payable but unpaid on the exchangeable
shares. DIFFERENT CANADIAN FEDERAL INCOME TAX CONSEQUENCES MAY ARISE DEPENDING
UPON WHETHER WE OR CALLCO EXERCISE THE CALL RIGHTS OR WHETHER YOUR EXCHANGEABLE
SHARES ARE REDEEMED BY EXCHANGECO. See "Income Tax Considerations -- Canadian
Federal Income Tax Considerations." In any circumstance where Exchangeco is
required to purchase your exchangeable shares, we may cause Callco to acquire
from us and deliver to you our common shares. In addition, we and Callco will
have an overriding call right on your exchangeable shares if there are changes
to Canadian tax laws permitting you to exchange your exchangeable shares without
recognizing any gain or loss or any actual or deemed dividend in respect of such
exchange. If and when Callco or, if applicable, Nabors Bermuda, acquires your
exchangeable shares
10
as a result of exercise of the call rights, neither of them will be entitled to
exercise any of the voting rights attached to your exchangeable shares.
Retraction Call Right. If you request the redemption by Exchangeco of your
exchangeable shares, you will be deemed to offer your exchangeable shares to
Callco, and Callco will have an overriding retraction call right to acquire all,
but not less than all, of the exchangeable shares that you have requested
Exchangeco to redeem in exchange for an equal number of our common shares, plus
the aggregate amount of dividends payable and unpaid, if any, on each such
exchangeable share. Upon the exercise of Callco's retraction call right, you
will be obligated to transfer your exchangeable shares to Callco.
Redemption Call Right. Callco has an overriding redemption call right to
acquire on an automatic redemption date all, but not less than all, of the
exchangeable shares then outstanding in exchange for an equal number of our
common shares, plus the aggregate amount of dividends payable and unpaid, if
any, on each such exchangeable share, and, upon the exercise of Callco's
redemption call right, you will be obligated to transfer your shares to Callco.
Liquidation Call Right. Callco will be granted an overriding liquidation
call right, in the event of and notwithstanding a proposed liquidation,
dissolution or winding-up of Exchangeco or any other distribution of the assets
of Exchangeco among its shareholders for the purpose of winding-up its affairs,
to acquire all, but not less than all, of the exchangeable shares then
outstanding in exchange for an equal number of our common shares, plus the
aggregate amount of dividends payable and unpaid, if any, on each such
exchangeable share. Upon the exercise of Callco's liquidation call right, you
will be obligated to transfer your exchangeable shares to Callco. Callco's
acquisition of all of the outstanding exchangeable shares upon the exercise of
the liquidation call right will occur on the effective date of the voluntary or
involuntary liquidation, dissolution or winding-up of Exchangeco.
Change of Law Call Right. We have the overriding right, in the event of
any amendment to the Income Tax Act (Canada) and other applicable Canadian
provincial income tax laws that permits holders of exchangeable shares who are
resident in Canada, hold the exchangeable shares as capital property and deal at
arm's length with us and Enserco (all for the purpose of the Income Tax Act
(Canada) and other applicable Canadian provincial income tax laws) to exchange
their exchangeable shares for our common shares on a basis that will not require
such holders to recognize any gain or loss or any actual or deemed dividend in
respect of such exchange for the purposes of the Income Tax Act (Canada) and
other applicable Canadian provincial income tax laws, to purchase (or to cause
Callco to purchase) from all but not less than all of the holders of the
exchangeable shares (other than any holder which is an affiliate of Nabors
Bermuda) all but not less than all of the exchangeable shares held by each such
holder upon payment by Nabors Bermuda or Callco, as the case may be, of an
amount per share equal to the exchangeable share price applicable on the last
business day prior to the date on which Nabors Bermuda or Callco intends to
purchase such shares. Payment of the exchangeable share price will be fully
satisfied by the delivery for each exchangeable share of one of our common
shares plus the aggregate amount of dividends payable and unpaid, if any, on
each such exchangeable share.
To exercise the foregoing right, Nabors Bermuda or Callco must notify the
transfer agent for the exchangeable shares of its intention to exercise such
right at least 45 days before the date on which Nabors Bermuda or Callco intends
to acquire the exchangeable shares. Upon the exercise of this right, holders
will be obligated to sell their exchangeable shares to Nabors Bermuda or Callco,
as the case may be.
If we or Callco exercise one or more of our call rights, Nabors Bermuda or
Callco will issue our common shares to you and will become the holder of your
exchangeable shares. If and when Callco or, if applicable, Nabors Bermuda,
acquires your exchangeable shares under the call rights, neither of them will be
entitled to exercise any of the voting rights attached to your exchangeable
shares. If we or Callco decline to exercise our respective call rights when
available, we will be required to issue our common shares as Exchangeco directs,
including to Exchangeco, which will, in turn, transfer our common shares to you
in consideration for the return and cancellation of your exchangeable shares. In
the event we or Callco do not exercise our call rights when applicable and
instead deliver our common shares as Exchangeco
11
directs, you would receive the same consideration, but the Canadian tax
consequences will be substantially different. See "Income Tax
Considerations -- Canadian Federal Income Tax Considerations." However, we
anticipate that we or Callco will exercise our call rights, when available, and
currently foresee no circumstances under which we or Callco would not exercise
our call rights. In addition, we do not anticipate any restriction or limitation
on the number of exchangeable shares we or Callco would acquire upon the
exercise of our call rights.
WITHHOLDING RIGHTS
Each of Nabors Bermuda, Callco, Exchangeco, Exchangeco's transfer agent and
the trustee will be entitled to deduct and withhold from any dividend or other
consideration otherwise payable to any holder of exchangeable shares or our
common shares such amounts as each of Nabors Bermuda, Callco, Exchangeco,
Exchangeco's transfer agent or the trustee is required to deduct and withhold
with respect to such payment under the Income Tax Act (Canada), the United
States Internal Revenue Code of 1986, as amended (the "Code"), or any provision
of federal, provincial, state, local or foreign tax law. To the extent that
amounts are so withheld, such withheld amounts will be treated for all purposes
as having been paid to the holder of the exchangeable shares or our common
shares, as the case may be, in respect of which the deduction and withholding
was made, provided that the withheld amounts are actually remitted to the
appropriate taxing authority. To the extent that the amount required to be
deducted or withheld from any payment to a holder exceeds the cash portion of
the dividend or other consideration otherwise payable to the holder, Nabors
Bermuda, Callco, Exchangeco, Exchangeco's transfer agent and the trustee are
authorized to sell or otherwise dispose of the portion of the consideration
necessary to provide sufficient funds to Nabors Bermuda, Callco, Exchangeco,
Exchangeco's transfer agent or the trustee, as the case may be, to enable it to
comply with the deduction or withholding requirement and Nabors Bermuda, Callco,
Exchangeco, Exchangeco's transfer agent or the trustee, as the case may be, will
notify the holder and remit to the holder any unapplied balance of the net
proceeds of such sale.
SCF-IV WARRANTS
On March 18, 2002, SCF-IV held warrants to purchase 500,000 Enserco common
shares at an exercise price per Enserco common share of Cdn. $9.50. Such
warrants were set to expire on November 13, 2003. The warrants may be exercised
in whole or in part at any time prior to the expiration date.
Upon the closing of our acquisition of Enserco and the reorganization, we
assumed Enserco's obligations under all of the above warrants. Each warrant then
became exercisable for a number of our common shares equal to the product
obtained by multiplying the number of Enserco common shares subject to such
warrant by the exchange ratio (rounded down to a whole number of shares). The
exercise price of each such warrant per share of our common share is equal to
the exercise price per Enserco common share of such warrant immediately prior to
the consummation of the plan of arrangement divided by the exchange ratio, with
the result converted into U.S. dollars. The term to expiry, conditions to and
the manner of exercising, vesting schedule, and all other terms and conditions
of such warrants are otherwise unchanged, and any document or agreement
previously evidencing an Enserco warrant evidences and is deemed to evidence the
assumed warrant.
On April 26, 2002, such warrants became exercisable for approximately
118,850 shares of Nabors Delaware common stock, then upon the completion of the
reorganization such warrants became exercisable for approximately 118,850 of our
common shares, subject to adjustment. The number of our common shares issuable
upon exercise of each warrant is subject to adjustment if we subdivide, redivide
or change our outstanding common shares into a greater number of shares or if we
reduce, combine or consolidate our outstanding common shares into a smaller
number of shares. In addition, if we otherwise reclassify our common shares or
if we effect a capital reorganization, merger, amalgamation, consolidation or
sell all or substantially all of our assets, each warrant will, after the
effective time of any such action or transaction, be exercisable for a number
and type of shares, other securities or property that the holder of the warrant
would have been entitled to receive had the holder of the warrant been the
registered holder of
12
the number of shares of our common shares issuable upon exercise of the warrant
on the record date or the effective date of any such transaction.
If we fix a record date for making a distribution or dividend of cash,
Nabors Bermuda shares of any class, rights options or warrants, evidence of
indebtedness or assets (including shares of other corporations) to all or
substantially all the holders of our outstanding common shares, the holder of a
warrant shall be entitled to receive, upon exercise of such warrant, the amount
of cash or the number and kind of shares, other securities or property the
holder of the warrant would have been entitled to receive had the holder of the
warrant been the registered holder of the number of shares of our common shares
issuable upon exercise of the warrant on such record date.
In addition, each warrant contains a "cashless exercise" provision which
allows the holder of the warrant to exercise the warrant without payment of the
exercise price. The number of shares of our common shares issuable upon a
cashless exercise will be determined by dividing by the weighted average closing
price, the difference between the weighted average closing price and the
exercise price of the warrant multiplied by the number of warrants being
exercised. For these purposes, the weighted average closing price is the
weighted average closing price of our common shares on the American Stock
Exchange for the 10 days before such exercise.
13
DESCRIPTION OF OUR SHARE CAPITAL
Our authorized share capital consists of 425,000,000 shares of capital
stock of which 400,000,000 are common shares, par value $0.001 per share, and
25,000,000 are preferred shares, par value $0.001 per share. The following
summary is qualified in its entirety by the provisions of Nabors Bermuda's
Memorandum of Association, dated December 10, 2001 and Nabors Bermuda's Amended
and Restated Bye-Laws, which are both publicly available. See "Where You Can
Find More Information." As of the close of business on June 24, 2002, there were
144,185,776 Nabors Bermuda common shares outstanding and one special preferred
voting share outstanding (with the rights and preferences described below under
"Preferred Shares").
COMMON SHARES
Holders of our common shares are entitled to one vote on any question to be
decided on a show of hands and one vote per share on a poll on all matters
submitted to a vote of the shareholders of Nabors Bermuda. Except as
specifically provided in the Nabors Bermuda's bye-laws or in The Companies Act
1981 (Bermuda), as amended (which we refer to as the Companies Act in this
prospectus), any action to be taken by shareholders at any meeting at which a
quorum is in attendance shall be decided by a majority of the issued shares
present in person or represented by proxy and entitled to vote. There are no
limitations imposed by Bermuda law or Nabors Bermuda's bye-laws on the right of
shareholders who are not Bermuda residents to hold or to vote their Nabors
Bermuda common shares.
Our bye-laws do not provide for cumulative voting. A special meeting of
shareholders may be called by Nabors Bermuda's board of directors or as
otherwise provided by the Companies Act and applicable law. Any action, except
the removal of auditors and directors, required or permitted to be taken at any
annual or special meeting of shareholders may be taken by written consent if the
consent is signed by each shareholder, or their proxy, entitled to vote on the
matter.
Holders of Nabor Bermuda common shares do not have a preemptive or
preferential right to purchase any other securities of Nabors Bermuda. Nabors
Bermuda's common shares have no sinking fund provision.
PRICE RANGE OF COMMON SHARES
Our common shares are traded on the American Stock Exchange under the
symbol "NBR." The following table sets forth, for the periods indicated, the
high and low sale price per share of Nabors Delaware common stock prior to the
reorganization on the American Stock Exchange.
HIGH LOW
(U.S.$) (U.S.$)
------- -------
1999 -- NABORS DELAWARE
First Quarter............................................... 19.00 10.75
Second Quarter.............................................. 25.3125 15.50
Third Quarter............................................... 29.50 21.5625
Fourth Quarter.............................................. 31.25 19.75
2000 -- NABORS DELAWARE
First Quarter............................................... 40.5625 28.125
Second Quarter.............................................. 44.25 34.00
Third Quarter............................................... 53.8125 38.5625
Fourth Quarter.............................................. 60.47 40.50
14
HIGH LOW
(U.S.$) (U.S.$)
------- -------
2001 -- NABORS DELAWARE
First Quarter............................................... 63.12 50.70
Second Quarter.............................................. 61.25 37.20
Third Quarter............................................... 38.12 18.00
Fourth Quarter.............................................. 36.15 19.76
2002 -- NABORS DELAWARE
First Quarter............................................... 43.00 26.98
Second Quarter (through June 24, 2002)...................... 49.98 36.00
On June 24, 2002, the last sale price reported on the American Stock
Exchange for Nabors Delaware common stock was $37.95 per share.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common shares.
Nabors Delaware last paid a cash dividend in 1982. We do not anticipate paying
any cash dividends on our common shares in the foreseeable future.
PREFERRED SHARES
The board of directors of Nabors Bermuda is authorized, without further
shareholder action, to issue from time to time up to 25,000,000 preferred shares
in one or more classes or series, and fix for each such class or series such
voting power, full or limited, or no voting power, and such designations,
preferences and relative, participating, optional or other special rights and
such qualifications, limitations or restrictions thereof, as are provided in the
resolutions adopted by the board of directors providing for the issuance of such
class or series. The Nabors Bermuda board of directors in authorizing such class
or series may provide that any such class or series may be:
- subject to redemption at the option of the company or the holders, or
both, at such time or times and at such price or prices;
- entitled to receive dividends (which may be cumulative or non-cumulative)
at such rates, on such conditions, and at such times, and payable in
preference to, or in relation to, the dividends payable on any other
class or classes or any other series;
- entitled to such rights upon the dissolution of, or upon any distribution
of the assets of, Nabors Bermuda; or
- convertible into, or exchangeable for, shares of any other class or
classes of shares, or of any other series of the same or any other class
or classes of shares, of Nabors Bermuda at such price or prices or at
such rates of exchange and with such adjustments;
in each case, as set forth in the resolutions authorizing the class or series of
preferred shares.
A series of preferred shares, consisting of one share, has been designated
as a special voting preferred share, having a par value of $0.001 per share and
a liquidation preference of $0.01. Except as otherwise required by law, our
memorandum of association or our bye-laws, the one special voting preferred
share will possess a number of votes for the election of directors and on all
other matters submitted to a vote of our shareholders equal to the number of
outstanding exchangeable shares from time to time not owned by us or any entity
controlled by us. The holders of our common shares and the holder of the special
voting preferred share will vote together as a single class on all matters on
which holders of our common shares are eligible to vote. In the event of our
liquidation, dissolution or winding-up, all outstanding exchangeable shares will
automatically be exchanged for shares of our common shares, and the holder of
the special voting preferred share will not be entitled to receive any assets
available for distribution to our
15
shareholders (other than the $.01 liquidation preference). The holder of the
special voting preferred share will not be entitled to receive dividends. The
special voting preferred share will be issued to Computershare Trust Company of
Canada, as trustee under a voting and exchange trust agreement among us,
Exchangeco and such trustee. At such time as the one special voting preferred
share has no votes attached to it because there are no exchangeable shares
outstanding not owned by us or an entity controlled by us, the special voting
preferred share will be canceled.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for Nabors Bermuda's common shares is
EquiServe.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND
BYE-LAWS
Nabors Bermuda's bye-laws have provisions that could have an anti-takeover
effect. Generally, these provisions are intended to substantively replicate
provisions which were in Nabors Delaware's certificate of incorporation and
by-laws. In addition, Nabors Bermuda's bye-laws include an "advance notice"
provision which places time limitations on shareholders' nominations of
directors and submission of proposals for consideration at an annual general
meeting. These provisions are intended to enhance the likelihood of continuity
and stability in the composition of the board of directors and in the policies
formulated by the board of directors and to encourage negotiations with the
board of directors in transactions that may involve an actual or potential
change of control of Nabors Bermuda.
The bye-laws provide that Nabors Bermuda's board of directors will be
divided into three classes serving staggered three-year terms. Directors can be
removed from office prior to the expiration of their term only for cause by the
affirmative vote of the holders of a majority of the voting power of Nabors
Bermuda on the relevant record date. The board of directors does not have the
power to remove directors. As long as a quorum of directors remains and is
present, vacancies on the board of directors may be filled by a majority vote of
the remaining directors. Any general meeting can authorize the board of
directors to fill any vacancy left unfilled at a general meeting. Each of these
provisions can delay a shareholder from obtaining majority representation on the
board of directors.
The bye-laws also provide that the board of directors will consist of not
less than five nor more than eighteen persons, the exact number to be set from
time to time by the affirmative vote of a majority of the directors then in
office. Accordingly, the board of directors, and not the shareholders, has the
authority to determine the number of directors and could delay any shareholder
from obtaining majority representation on the board of directors by enlarging
the board of directors and filling the new vacancies with its own nominees.
The bye-laws of Nabors Bermuda provide that at any annual general meeting,
only such business shall be conducted as shall have been brought before the
meeting by or at the direction of the board of directors, by any shareholder who
complies with certain procedures set forth in the bye-laws or by any shareholder
pursuant to the valid exercise of the power granted under the Companies Act.
For business to be properly brought before an annual general meeting by a
shareholder in accordance with the terms of the bye-laws the shareholder must
have given timely notice thereof in proper written form to the Secretary of
Nabors Bermuda and satisfied all requirements under applicable rules promulgated
by the SEC. To be timely for consideration at the annual general meeting, a
shareholder's notice must be received by the Secretary at Nabors Bermuda's
principal executive offices and its registered office in Bermuda not less than
60 days nor more than 90 days prior to the anniversary date of the immediately
preceding annual general meeting, provided that in the event that the annual
general meeting is called for a date that is not within 30 days before or after
such anniversary date, not later than the 10th day following the day on which
such notice of the date of the annual general meeting was mailed or public
disclosure of the date of the annual general meeting was made, whichever occurs
first. In order for a shareholder to nominate directors in connection with an
annual general meeting of shareholders, a shareholder's notice of his intention
to make such nominations must be received in proper written form as
16
specified in the bye-laws of Nabors Bermuda by the Secretary of Nabors Bermuda
within the time limits described above.
In addition, the Companies Act provides for a mechanism by which 100
shareholders acting together or shareholders holding at least 5% of the voting
power of a Bermuda company may properly propose a resolution for consideration
at a general meeting of the company.
Subject to the terms of any other class of shares in issue, any action
required or permitted to be taken by the holders of Nabors Bermuda's common
shares must be taken at a duly called annual or special general meeting of
shareholders unless taken by written consent of all holders of common shares.
Under the bye-laws, special general meetings may be called at any time by the
board of directors or when requisitioned by shareholders pursuant to the
provisions of the Companies Act. The Companies Act currently permits
shareholders holding 10% of the shares of a company entitled to vote at general
meeting to requisition a special general meeting.
The board of directors is authorized, without obtaining any vote or consent
of the holders of any class or series of shares unless expressly provided by the
terms of issue of a class or series, to from time to time issue any authorized
and unissued shares on such terms and conditions as it may determine. For
example, the board of directors could authorize the issuance of preferred shares
with terms and conditions that could discourage a takeover or other transaction
that holders of some or a majority of the Nabors Bermuda common shares might
believe to be in their best interests or in which holders might receive a
premium for their shares over the then market price of the shares.
17
INCOME TAX CONSIDERATIONS
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Stikeman Elliott, our Canadian counsel, the following is
a fair and accurate summary of the material Canadian federal income tax
considerations generally applicable under the Income Tax Act (Canada) (the
"Canadian Income Tax Act") if you hold exchangeable shares or acquire our common
shares on the exchange of exchangeable shares and if, for purposes of the
Canadian Income Tax Act, you deal with us at arm's length and hold your
exchangeable shares and will hold our common shares as capital property. This
discussion does not apply to you if you are a "financial institution", as
defined in the Canadian Income Tax Act for the purposes of the mark-to-market
provisions thereof.
The exchangeable shares and our common shares will generally be considered
to be capital property to you unless such shares are held by you in the course
of carrying on a business of buying and selling securities or such shares are
acquired by you in a transaction considered to be an adventure in the nature of
trade. If you are a resident of Canada and the exchangeable shares might not
otherwise qualify as capital property, you may be entitled to obtain this
qualification by making the irrevocable election provided under subsection 39(4)
of the Canadian Income Tax Act. If you do not hold your exchangeable shares or
will not hold our common shares as capital property, you should consult your own
tax advisors for information and advice having regard to your particular
circumstances.
This summary is based on the current provisions of the Canadian Income Tax
Act and regulations thereunder, the current provisions of the Convention Between
the United States of America and Canada with Respect to Taxes on Income and on
Capital, signed September 26, 1980, as amended, (the "Canada-U.S. Tax
Convention") and our counsel's understanding of the current published
administrative practices of the Canada Customs and Revenue Agency (the "CCRA").
This summary takes into account all specific proposals to amend the Canadian
Income Tax Act and regulations that have been publicly announced by the Minister
of Finance (Canada) prior to the date hereof and assumes that all of these
proposed amendments will be enacted in their present form. No assurances can be
given that any proposed amendments will be enacted in the form proposed, if at
all. Except for the foregoing, this summary does not take into account or
anticipate any changes in law, whether by legislative, administrative or
judicial decision or action, nor does it take into account provincial,
territorial or foreign income tax legislation or considerations which may differ
from the Canadian federal income tax considerations described below. No advance
income tax ruling has been sought or obtained from the CCRA to confirm the tax
consequences of any of the transactions relating to the exchangeable shares or
the acquisition of our common shares on the exchange of exchangeable shares.
For purposes of the Canadian Income Tax Act, all amounts otherwise
denominated in United States dollars relating to the acquisition, holding or
disposition of our common shares, including dividends, adjusted cost base
amounts and proceeds of disposition, must be converted into Canadian dollars
based on the prevailing United States dollar exchange rate generally at the time
these amounts arise.
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, AND
SHOULD NOT BE CONSTRUED TO BE, LEGAL, BUSINESS OR TAX ADVICE TO YOU. THEREFORE,
YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISORS WITH RESPECT TO YOUR PARTICULAR
CIRCUMSTANCES.
SHAREHOLDERS RESIDENT IN CANADA
The following portion of this summary will apply to you only if, for the
purposes of the Canadian Income Tax Act and any applicable income tax treaty or
convention, you are resident or deemed to be resident in Canada at all relevant
times. This summary does not apply to you if we are or will be a "foreign
affiliate" of you as defined in the Canadian Income Tax Act.
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Redemption of Exchangeable Shares
On a redemption (including a retraction) of your exchangeable shares by
Exchangeco, you will be deemed to have received a dividend equal to the amount,
if any, by which the redemption proceeds exceed the "paid-up capital" of the
exchangeable shares so redeemed. The "paid-up capital" of an exchangeable share
will be equal to the aggregate paid-up capital of all of the exchangeable shares
divided by the number of exchangeable shares outstanding. The aggregate paid-up
capital of all of the exchangeable shares will generally be equal to the
aggregate consideration for which the exchangeable shares were issued (provided
that amount was added to the stated capital account maintained for the
exchangeable shares under the relevant corporate law), less an amount to be
determined based upon the Canadian tax elections that are filed by former
shareholders of Enserco who elected to exchange their Enserco shares for
exchangeable shares under the arrangement and who are permitted under the terms
of the arrangement to, and do, file such Canadian tax elections. For these
purposes, the redemption proceeds will be the fair market value of our common
shares received from Exchangeco at the time of the redemption plus the amount,
if any, of all payable and unpaid dividends on the exchangeable shares paid on
the redemption. The taxation of dividends received or deemed to be received on
the exchangeable shares is described below. We anticipate that we or Callco, as
the case may be, will exercise our call rights, when available, and currently
foresee no circumstances under which exchangeable shares would be redeemed by
Exchangeco.
On a redemption (including a retraction) of your exchangeable shares, you
will also be considered to have disposed of your exchangeable shares, but the
amount of the deemed dividend, described above, will be excluded in computing
your proceeds of disposition for purposes of computing any capital gain or
capital loss arising on the disposition. If you are a corporation, in some
circumstances, the amount of any such deemed dividend may be treated as proceeds
of disposition and not as a dividend. The taxation of capital gains and capital
losses is described below.
Exchange of Exchangeable Shares With Us
On an exchange of your exchangeable shares with us or Callco for our common
shares, you will generally realize a capital gain (or a capital loss) equal to
the amount by which the proceeds of disposition of your exchangeable shares, net
of any reasonable costs of disposition, exceed (or are less than) the adjusted
cost base to you of the exchangeable shares immediately before the exchange. For
these purposes, the proceeds of disposition will be the fair market value at the
time of the exchange of our common shares which you receive. The taxation of
capital gains and capital losses is described below. Any amount received by you
as part of the exchange that is in lieu of or in satisfaction of dividends that
are payable but not paid on the exchangeable shares will be treated as a
dividend rather than as proceeds of disposition. The taxation of dividends
received or deemed to be received on the exchangeable shares is discussed below.
Dividends on Exchangeable Shares
If you are an individual, dividends received or deemed to be received on
the exchangeable shares will be included in computing your income, and will be
subject to the gross-up and dividend tax credit rules normally applicable to
taxable dividends received from a corporation resident in Canada.
Subject to the discussion below regarding our status as a "specified
financial institution" for the purposes of the Canadian Income Tax Act, if you
are a corporation other than a "specified financial institution", as defined in
the Canadian Income Tax Act, dividends received or deemed to be received on the
exchangeable shares normally will be included in your income and be deductible
in computing your taxable income.
The exchangeable shares will be "term preferred shares", as defined in the
Canadian Income Tax Act. Consequently, if you are a "specified financial
institution", as defined in the Canadian Income Tax
19
Act, a dividend received on the exchangeable shares will be deductible in
computing your taxable income only if:
1. you did not acquire the exchangeable shares in the ordinary course
of carrying on your business; or
2. at the time the dividend is received, the exchangeable shares are
listed on a prescribed stock exchange in Canada (which currently includes
the TSX) and you, either alone or together with persons with whom you do
not deal at arm's length, do not receive (and are not deemed to receive)
dividends in respect of more than 10% of the issued and outstanding
exchangeable shares.
If you are a specified financial institution, you should consult your own
tax advisors.
We have been advised by our counsel (based in part on representations made
by us as to certain factual matters) that we currently qualify as a "specified
financial institution" for the purposes of the Canadian Income Tax Act. As a
consequence, and for so long as we continue to so qualify, if you are a
corporation (including a "specified financial institution" as defined in the
Canadian Income Tax Act), dividends received or deemed to be received on the
exchangeable shares will be deductible in computing your taxable income only if,
at the time such dividends or deemed dividends are received, the exchangeable
shares are listed on a prescribed stock exchange (which includes the TSX), we
are "related" to Exchangeco for the purposes of the Canadian Income Tax Act
(which we are now and anticipate that we will continue to be), and you, either
alone or together with persons with whom you do not deal at arm's length or
trusts or partnerships of which you or any such non-arm's length person is a
beneficiary or member, receive dividends in respect of not more than 10 percent
of the issued and outstanding exchangeable shares.
If you are a "private corporation," as defined in the Canadian Income Tax
Act, or any other corporation resident in Canada and controlled or deemed to be
controlled by or for the benefit of an individual or a related group of
individuals, you may be liable under Part IV of the Canadian Income Tax Act to
pay a refundable tax of 33 1/3 percent of any dividends received or deemed to be
received on your exchangeable shares to the extent that these dividends are
deductible in computing your taxable income.
If you are throughout the relevant taxation year a "Canadian-controlled
private corporation," as defined in the Canadian Income Tax Act, you may be
liable to pay an additional refundable tax of 6 2/3 percent of your "aggregate
investment income" for the year which will include dividends or deemed dividends
on the exchangeable shares that are not deductible in computing taxable income.
If you are a corporation, the amount of any capital loss realized on a
disposition or deemed disposition of exchangeable shares may be reduced by the
amount of any dividends received or deemed to have been received by you on the
exchangeable shares to the extent and under circumstances prescribed by the
Canadian Income Tax Act. Similar rules may apply where you are a corporation and
a member of a partnership or a beneficiary of a trust that owns these shares.
Acquisition and Disposition of Our Common Shares
The cost of our common shares received on a retraction, redemption or
exchange of exchangeable shares will be equal to the fair market value of such
common shares at the time of that event, and will be averaged with the adjusted
cost base of any other common shares of Nabors Bermuda held by you at that time
as capital property. A disposition or deemed disposition of our common shares by
you will generally result in the realization of a capital gain (or a capital
loss) equal to the amount by which the proceeds of disposition, net of any
reasonable costs of disposition, exceed (or are less than) the adjusted cost
base to you of these shares immediately before the disposition. The taxation of
capital gains and capital losses is described below.
20
Dividends on Our Common Shares
Dividends on our common shares will be included in your income for the
purposes of the Canadian Income Tax Act. If you are an individual, you will not
be subject to the gross-up and dividend tax credit rules in the Canadian Income
Tax Act applicable to dividends received from corporations resident in Canada.
If you are a corporation, you will be required to include these dividends in
computing your income and generally will not be entitled to deduct the amount of
these dividends in computing your taxable income.
A shareholder that is throughout the relevant taxation year a
"Canadian-controlled private corporation," as defined in the Canadian Income Tax
Act, may be liable to pay an additional refundable tax of 6 2/3 percent of its
"aggregate investment income" for the year which will include these dividends.
If there is non-resident withholding tax on any dividends you receive on
our common shares, you will generally be eligible for foreign tax credit or
deduction treatment where applicable under the Canadian Income Tax Act.
Taxation of Capital Gains and Capital Losses
One-half of any capital gain realized on a disposition or deemed
disposition of exchangeable shares or our common shares must be included in your
income for the year of the disposition. You generally may be able to deduct
one-half of any capital losses against one-half of any capital gains realized in
the year of the disposition. Any capital losses in excess of capital gains in
the year of the disposition may generally be carried back and deducted against
net capital gains (capital gains less capital losses) in any of the three
taxation years immediately preceding, or carried forward and deducted against
net capital gains in any taxation year following, the year of disposition, to
the extent and in the circumstances prescribed in the Canadian Income Tax Act.
Capital gains realized by an individual or trust, other than certain
trusts, may give rise to alternative minimum tax under the Canadian Income Tax
Act.
A shareholder that is throughout the relevant taxation year a
"Canadian-controlled private corporation," as defined in the Canadian Income Tax
Act, may be liable to pay an additional refundable tax of 6 2/3 percent of its
"aggregate investment income" for the year which will include an amount in
respect of taxable capital gains.
Foreign Property Information Reporting
With some exceptions, any taxpayer resident in Canada in the year is a
"specified Canadian entity," as defined in the Canadian Income Tax Act. If you
are a specified Canadian entity for a taxation year or fiscal period and the
total cost amount of "specified foreign property," which would include our
common shares and the exchangeable shares, at any time in the year or fiscal
period exceeds Cdn. $100,000, you will be required to file an information return
for the year or period disclosing prescribed information, your cost amount, any
dividends received in the year, and any gains or losses realized in the year, in
respect of the specified foreign property. You should consult your own advisors
about whether you must comply with these rules with respect to the ownership of
our common shares or the exchangeable shares.
SHAREHOLDERS NOT RESIDENT IN CANADA
The following portion of this summary will apply to you only if, for
purposes of the Canadian Income Tax Act and any applicable tax treaty or
convention, you will not be resident or deemed to be resident in Canada at any
time while you hold exchangeable shares or our common shares, and will not use
or hold the exchangeable shares or our common shares in, or in the course of,
carrying on a business (including an insurance business) in Canada and, except
as specifically discussed below, if those shares do not constitute "taxable
Canadian property" to you as defined in the Canadian Income Tax Act.
21
The exchangeable shares will generally not be taxable Canadian property to
you at a particular time provided that these shares are listed on a prescribed
stock exchange (which includes the TSX) and you, or persons with whom you do not
deal at arm's length, or you together with such persons have not owned (or had
under option) 25 percent or more of the issued shares of any class or series of
the capital stock of Exchangeco at any time within five years preceding the
particular time. Our common shares will generally not constitute taxable
Canadian property to you.
Provided the exchangeable shares or our common shares are not taxable
Canadian property to you, you will not be subject to tax under the Canadian
Income Tax Act on the exchange of exchangeable shares for our common shares
(except to the extent the exchange gives rise to a deemed dividend as discussed
below), or on the sale or other disposition of exchangeable shares or our common
shares.
Dividends paid or deemed to be paid on the exchangeable shares will be
subject to non-resident withholding tax under the Canadian Income Tax Act at the
rate of 25 percent, although this rate may be reduced under the provisions of an
applicable income tax treaty or convention. For example, under the Canada-U.S.
Tax Convention, the rate of non-resident withholding tax is generally reduced to
15 percent in respect of dividends paid to a person who is the beneficial owner
thereof and who is resident in the United States for purposes of the convention.
A holder whose exchangeable shares are redeemed by Exchangeco (either under
redemption rights or pursuant to retraction rights) will be deemed to receive a
dividend equal to the amount, if any, by which the redemption proceeds exceed
the "paid-up capital," for the purposes of the Canadian Income Tax Act, of the
exchangeable shares at the time the exchangeable shares are redeemed. For these
purposes, the redemption proceeds will be the fair market value of our common
shares received from Exchangeco at the time of the redemption plus the amount,
if any, of all payable and unpaid dividends on the exchangeable shares paid on
the redemption. Any deemed dividend will be subject to non-resident withholding
tax as described in the preceding paragraph. However, we anticipate that we or
Callco, as the case may be, will exercise our call rights, when available, and
currently foresee no circumstances under which exchangeable shares would be
redeemed by Exchangeco.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Skadden, Arps, Slate, Meagher & Flom LLP, the following
general discussion constitutes a fair and accurate summary of the anticipated
material United States federal income tax consequences of the ownership and
disposition of exchangeable shares that may be relevant to holders generally.
This discussion is based on the Code, United States Treasury regulations
promulgated thereunder, and judicial and administrative interpretations thereof,
in each case as in effect and available as of the date of this prospectus. These
income tax laws, regulations and interpretations, however, may change at any
time, and any change could be retroactive to the date of this prospectus. It
should be noted that legislation has been introduced which, if enacted in its
present form, could materially change the discussion set forth below. Moreover,
the United States Treasury Department is currently studying transactions such as
the reorganization and, as a result, changes in these income tax laws,
regulations, and interpretations may occur, possibly with retroactive effect,
which could affect the discussion set forth below. These income tax laws and
regulations are also subject to various interpretations, and the United States
Internal Revenue Service (the "IRS") or the United States courts could later
disagree with the explanations or conclusions contained in this summary.
No statutory, judicial or administrative authority exists that directly
addresses the United States federal income tax consequences of instruments
comparable to the exchangeable shares together with the associated ancillary
rights and call rights. Consequently, the United States federal income tax
treatment of the ownership of exchangeable shares and the exchange of
exchangeable shares for Nabors Bermuda common shares is not certain. No advance
ruling has been sought or obtained from the IRS regarding the tax consequence of
any of the transactions described herein and there can be no assurance that the
IRS would not challenge the conclusions contained in the discussion below, or,
if challenged, that a court would not agree with the IRS.
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As used herein, a "United States Holder" is a beneficial owner of
exchangeable shares that, for United States federal income tax purposes, is: (1)
a citizen or resident of the United States, (2) a corporation created or
organized in or under the laws of the United States, or of any political
subdivision thereof, (3) an estate or other entity the income of which is
includible in its gross income for United States federal income tax purposes
without regard to its source or (4) a trust if (A) a court within the United
States is able to exercise primary supervision over the administration of such
trust and one or more United States persons have the authority to control all
substantial decisions of the trust or (B) the trust has a valid election in
effect under the applicable United States Treasury regulations to be treated as
a United States person. A "non-United States Holder" is a beneficial owner of
exchangeable shares that is not a United States Holder. If a partnership
(including for this purpose any entity treated as a partnership for United
States federal income tax purposes) is a beneficial owner of the exchangeable
shares, the treatment of a partner in the partnership will generally depend upon
the status of the partner and upon the activities of the partnership. A holder
that is a partnership and partners in such partnership are urged to consult
their tax advisers about the United States federal income tax consequences of
holding and disposing of exchangeable shares. Based on current estimates of
gross income and gross assets and the nature of the business, Nabors Bermuda
believes that none of Exchangeco, Enserco or Nabors Bermuda will be classified
as a foreign personal holding company or a passive foreign investment company
for the current taxable year. The status of Exchangeco, Enserco and Nabors
Bermuda in future years, however, will depend on their income, assets and
activities in those years. Accordingly, this summary assumes that none of
Exchangeco, Enserco or Nabors Bermuda are or will be a "foreign personal holding
company" or a "passive foreign investment company" for United States federal
income tax purposes. This summary also assumes that none of Exchangeco, Enserco
or Nabors Bermuda are or will be a "controlled foreign corporation" for United
States federal income tax purposes. This discussion does not address persons
subject to special provisions of United States federal income tax law, such as
tax-exempt organizations, banks, financial institutions, insurance companies,
real estate investment trusts, regulated investment companies, dealers or
traders in securities or currencies, grantor trusts, persons having a
"functional currency" other than the United States dollar, non-United States
Holders, holders who own, or are deemed to own, 10% or more, determined by
voting power or value, of exchangeable shares, holders who hold exchangeable
shares as part of a hedge, straddle, wash sale, synthetic security, conversion
transaction or other integrated investment and holders of exchangeable shares
who acquired their interests through the exercise of employee stock options or
otherwise as compensation for services. This discussion is limited to holders
who hold exchangeable shares as, and who will hold Nabors Bermuda common shares
as, a capital asset as defined in the Code.
This discussion does not address all aspects of United States federal
income taxation that may be applicable to a particular holder in light of the
holder's particular circumstances. Accordingly, all holders are urged to consult
their tax advisors with respect to the United States federal income tax
consequences to them of the ownership and disposition of exchangeable shares in
light of their particular circumstances. This discussion does not address any
aspects of United States federal income taxation that may be applicable to
holders of options or warrants. In addition, this discussion does not address
the United States state or local tax consequences or the foreign tax
consequences of the ownership and disposition of the exchangeable shares.
HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE UNITED
STATES FEDERAL, STATE AND LOCAL TAX CONSEQUENCES, THE FOREIGN TAX CONSEQUENCES
AND THE NON-TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF EXCHANGEABLE
SHARES, NABORS BERMUDA COMMON SHARES AND ANCILLARY RIGHTS AND CALL RIGHTS.
UNITED STATES HOLDERS
Exchange of Exchangeable Shares
There is no authority directly addressing the proper characterization of
instruments similar to the exchangeable shares together with the associated
ancillary rights and call rights or the exchange of exchangeable shares for
Nabors Bermuda common shares (including an exchange upon the occurrence of an
automatic redemption date). As a result, the consequences to a United States
Holder of such an exchange are unclear.
23
A United States Holder may be justified in taking the position that the
exchangeable shares (together with the ancillary rights and call rights)
constitute stock of Nabors Bermuda for United States federal income tax
purposes. If the exchangeable shares (together with the ancillary rights and
call rights) constitute stock of Nabors Bermuda for United States federal income
tax purposes, the exchange of the exchangeable shares for Nabors Bermuda common
shares should not be a taxable event. In such event, the aggregate tax basis of
the Nabors Bermuda common shares received pursuant to the exchange would equal
the United States Holder's aggregate tax basis in the exchangeable shares and
the holding period of the Nabors Bermuda common shares received by such holder
would include the holding period of the exchangeable shares surrendered in the
exchange.
Alternatively, if the exchangeable shares constitute stock of Exchangeco
for United States federal income tax purposes, a United States Holder who
exchanges its exchangeable shares for Nabors Bermuda common shares would
generally recognize gain or loss. Such gain or loss would be measured by the
difference, if any, between (1) the fair market value of the Nabors Bermuda
common shares received at the time of the exchange and (2) the United States
Holder's tax basis in the exchangeable shares surrendered, and would generally
be capital gain or loss, except with respect to any declared but unpaid
dividends on the exchangeable shares. Under this alternative characterization, a
United States Holder's tax basis in the Nabors Bermuda common shares received
would be equal to the fair market value of such shares at the time of the
exchange and the holding period for such shares would begin on the day after the
exchange.
For United States federal income tax purposes, gain recognized on the
exchange of exchangeable shares for Nabors Bermuda common shares will generally
be treated as United States source gain, except that, under the terms of the
Canada-United States Tax Convention, such gain may be treated as sourced in
Canada. Any Canadian tax imposed on the exchange may be available as a credit
against United States federal income taxes, subject to applicable limitations.
Alternatively, a United States Holder may be entitled to claim a deduction with
respect to any Canadian tax paid in computing United States taxable income.
Distributions on the Exchangeable Shares
Because the treatment of exchangeable shares is not clear, the treatment of
dividends with respect to such shares is also not clear. If dividends received
by a United States Holder with respect to the exchangeable shares constitute
dividends from Nabors Bermuda for United States federal income tax purposes,
then any dividends paid with respect to the exchangeable shares out of Nabors
Bermuda's earnings and profits would be treated as foreign source dividend
income and would generally not be eligible for the dividends received deduction
allowed to corporate shareholders under the Code.
Alternatively, if dividends received by a United States Holder with respect
to the exchangeable shares constitute dividends from Exchangeco for United
States federal income tax purposes, then any dividends paid with respect to the
exchangeable shares out of Exchangeco's earnings and profits would be treated as
foreign source dividend income and would generally not be eligible for the
dividends received deduction allowed to corporate shareholders under the Code.
Dividends paid in Canadian dollars will be includible in the income of a
United States Holder in a United States dollar amount calculated by reference to
the exchange rate in effect on the date the dividends are deemed received.
United States Holders are urged to consult their tax advisors regarding the
treatment of any foreign currency gain or loss on any Canadian dollars received
which are not converted into United States dollars on such date.
Under the terms of the Canada-United States Tax Convention, distributions
with respect to the exchangeable shares received by United States Holders may be
subject to Canadian withholding tax at a rate of 15% irrespective of the
treatment for United States federal income tax purposes. Subject to certain
limitations of United States federal income tax law, a United States Holder
should generally be entitled to either a credit against its United States
federal income tax liability or a deduction in computing United States taxable
income for Canadian income taxes withheld from distributions with respect to the
exchangeable shares. The use of a credit may, however, be limited or precluded
entirely if the United
24
States Holder has no income that is treated as non-United States source income
for United States federal income tax purposes.
Backup Withholding and Information Reporting
Payments of dividends made with respect to, or the proceeds of the sale or
other disposition of, the exchangeable shares and Nabors Bermuda common shares,
as the case may be, may be subject to information reporting and United States
federal backup withholding tax at the then applicable rate if the recipient of
such payment fails to supply an accurate taxpayer identification number or
otherwise fails to comply with applicable United States information reporting or
certification requirements. Any amount withheld from a payment to a United
States Holder under the backup withholding rules is allowable as a credit
against the holder's United States federal income tax, provided that the
required information is furnished to the IRS.
NON-UNITED STATES HOLDERS
A non-United States Holder should generally not be subject to United States
federal income tax as a result of the ownership and disposition of exchangeable
shares. However, as noted above, legislation has been introduced which, if
enacted in its present form, could materially change the United States federal
income tax consequences of the ownership and disposition of exchangeable shares
to non-United States Holders. It is difficult at this time to predict what, if
any, changes might occur. Non-United States Holders are urged to consult their
tax advisors regarding the possibility and effect of any such changes.
BERMUDA INCOME TAX CONSIDERATIONS
Under current Bermuda law, we are not subject to tax in Bermuda on our
income or capital gains. Furthermore, we have obtained from the Minister of
Finance of Bermuda, under the Exempted Undertakings Tax Protection Act 1966, an
undertaking that, in the event that Bermuda enacts any legislation imposing tax
computed on any income or capital gains, that tax will not be applicable to us
until March 28, 2016. This undertaking does not, however, prevent the imposition
of any tax or duty on persons ordinarily resident in Bermuda or any property tax
on leasehold interests we may have in Bermuda. We will pay an annual government
fee in Bermuda based on our authorised share capital and share premium. The
maximum annual government fee applicable to us is currently $29,215, and we
expect to be subject to the maximum fee.
Under current Bermuda law, no income, withholding or other taxes or stamp
or other duties are imposed in Bermuda upon the issue, transfer or sale of our
common shares or on any payments in respect of our common shares (except, in
certain circumstances, to persons ordinarily resident in Bermuda).
In the opinion of Appleby, Spurling & Kempe, the exchange of exchangeable
shares for common shares of Nabors Bermuda will be tax-free under Bermuda law to
Nabors Bermuda and the holders of the exchangeable shares.
LEGAL MATTERS
The validity of our common shares issuable hereunder will be passed upon
for us by Appleby, Spurling & Kempe. Certain Bermuda income tax matters have
been passed on by Appleby, Spurling & Kempe, certain United States federal
income tax matters have been passed upon by Skadden, Arps, Slate, Meagher & Flom
LLP and certain Canadian federal income tax matters have been passed upon by
Stikeman Elliott.
EXPERTS
The consolidated financial statements incorporated in this prospectus by
reference to the Annual Report on Form 10-K of Nabors Delaware for the year
ended December 31, 2001 have been so incorporated in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
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